The role of regulation in social and environmental reporting in the UK.

Over the last eight years, the UK government has reformed Social and Environmental Reporting (SER) regulations three times, introducing the Operating and Financial Review (2005), The Enhanced Business Review (2007) and the Strategic Report and Directors’ Report (2013). These frequent changes and increasing stakeholder interest in SER regulation have resulted in a growing body of literature measuring firms’ compliance with regulation. However, very little empirical research has been carried out analysing the impact of regulation on SER, and in particular, analysing the lobbying practices and attitudes of firms towards regulations governing social and environmental issues. Thus, this research examines the role of regulation in social and environmental reporting in the UK, focusing on the development of and changes in the Operating and Financial Review (OFR) and the Enhanced Business Review (EBR). By examining the role of regulation as well as the practices and attitudes of firms towards SER regulation, the thesis evaluates their complementary effects. It is presented in three empirical chapters. The first empirical chapter applies content analysis to documentary evidence, and employs in-depth interviews with key stakeholders, to examine the influence of lobbyists on government, in particular on the changes that occurred in the OFR and the EBR. Contrary to previous findings, the chapter finds that the Confederation of Business Industry (CBI) and the Friends of the Earth (FoE), contributed significantly to the changes that occurred in social and environmental regulations. In concluding that the government responded to pressure from lobbyists by reforming regulations, this thesis adds to the standard account of regulatory capture by showing that regulatory outcomes were a function, not just of lobbying, but also access to ex ante regulatory processes, creating a dynamic incrementalism in the regulatory framework. The second empirical chapter explores the impact of the EBR on social and environmental Reporting on disclosures in firm’s annual reports. To analyse the effect the introduction of the EBR had on the quantity and quality of SER, the chapter compares the SER levels of firms listed on the FTSE4Good and those not listed on the FTSE4Good; in particular to examine whether FTSE4Good listed firms differ from other firms in their reporting on social and environmental matters. The findings suggest that the EBR had a significant impact on firms SER, questioning the fears of cost and competitiveness as articulated by the CBI’s lobbying position against regulation. Furthermore, the chapter finds that whilst the FTSE4Good did not significantly differ in mandatory reporting levels from the Non-FTSE4Good, their engagement with voluntary reporting was higher. In light of the CBI’s opposition to regulation and firm’s increasing levels of SER, the chapter suggests that firms are increasingly using SER as a form of strategy in a bid to increase competitiveness in the SER field. Finally, having suggested that firms are increasingly using SER as a form of strategy, the third empirical chapter explores this theory in detail. Using the Resource Based View it is argued that competitive dynamics explain firms’ SER behaviour and that firms use SER to build their competitive position. It is postulated that firms pursue their competitive advantage, firstly, by using SER to create difficult to replicate assets and secondly, by adopting either a positive or negative attitude towards SER regulation depending on the quality of their SER assets. Thus, using interview evidence obtained from firms, it is found that firms either adopt a positive attitude towards regulation with the aim of standardising regulation to enable them to compete effectively, or alternatively adopt a negative attitude towards regulation with the aim of maintaining their competitive advantage in SER. In summary, the thesis demonstrates that regulatory outcomes are a dynamic function of lobbying and previously enacted legislation, creating a path dependency in the evolution of control over firm behaviour. Firm level accounting disclosures reflect these outcomes, but also contain a significant element of voluntarism thereby increasing disclosure quality. The extent of disclosure and attitude to regulation are further strongly informed by the strategic posture of the organisation and the progressive empowerment of internal SER advocates that have emerged in response to the regulatory agenda.